Will your farm qualify for Chapter 12 bankruptcy? Chapter 12 bankruptcy was designed for farmers and fisherman who have a regular annual income. This allows farms in distress to create a plan and repay all or a portion of their debts that they have struggled with. While it is an excellent financial option for farms in distress, not all farmers will qualify for Chapter 12.
Just like any other form of bankruptcy, there are strict requirements for filing for Chapter 12 bankruptcy. Therefore, if your family farm is in need of help, it is in your best interest to speak with a bankruptcy attorney to explore your options.
Regular Annual Income
The Bankruptcy Code requires that you prove that you have a regular annual income. You can then file for Chapter 12 if you have valid proof. The purpose is to ensure that you have a sufficient amount of income that will satisfy a repayment plan once approved by the court.
There are situations when a family farm can have income only during specific seasons. So, if your farm only generates income during a particular season, you may still qualify for relief.
Family Farm Requirement
Under the code, a family farm will fall into two categories:
- An individual or an individual with spouse.
- A corporation or partnership.
A farmer who falls into the first category will have to meet specific criteria, which includes:
- Meeting a specific debt amount.
- Being engaged in commercial farming or having an operational farm.
- At least 50 percent of your debts in a fixed amount are related to the farming business.
- Having more than 50 percent of your income come from the farming business.
If you are a corporation or partnership, you will have different requirements, which include:
- Owning more than one-half of the stock or equity in the business.
- Having family and relatives conduct the business.
- More than 80 percent of the value of your assets is related to farming.
- The debt meets a specific threshold.
- At least 50 percent of your debts are from farming.
- Your stock is not publicly traded.
Dismissals in the Past
If you have had a dismissal for a bankruptcy in the last 180 days, you may be barred from filing for Chapter 12. There are exclusions to this rule and you may still be able to file, especially if the preceding filing was not dismissed due to a failure to appear before the court or comply with the terms of your bankruptcy order.
Explore Your Options and Save Your Family Farm – Speak to an Attorney
If your family farm is struggling to pay debts and you need relief, it may be time to consider bankruptcy. Under Chapter 12, you will be able to create a payment plan that helps you get back on your feet without risking your family’s biggest asset: The farm.
To explore your options and see if your farm qualifies for Chapter 12, you need to meet with a bankruptcy attorney. Contact us today to schedule a no-obligation consultation.